NEW DELHI — In a big move for global retailers invested in India, the government has allowed retailers with single brand, foreign direct investment to sell online.
The decision means these retailers will be able to set up their own e-commerce sites in a market that is quickly growing in e-tailing. Global companies were not allowed to have their own e-commerce sites until now.
Prime Minister Narendra Modi said the reforms were meant to “ease, rationalize and simplify processes” and were part of his commitment to development and reform.
The $550 billion retail industry in India is one of the top five retail markets in the world, growing at 15 to 18 percent a year.
According to a report by Bank of America-Merrill Lynch, the gross merchandise value of the e-commerce sector has been estimated to be 10 percent higher than previously forecast, at $220 billion by 2025. The report said this was based on an expectation of structural changes to consumer usage patterns with customers giving preference to buying online, at the expense of off-line companies. The is expected to be an increasing use of mobile phones to access the Internet, with more than 235 million people already doing so.
Goldman Sachs also revised its earlier estimates in October — predicting that the overall e-commerce market size will grow to $100 billion by 2020, instead of the previously forecast $81 billion.
The e-commerce market in India is about $16 billion, having grown rapidly in the last two years.
In another tweaking of the single-brand retail policy, global brands will also get more time to meet the mandatory requirement of 30 percent sourcing from India. This was supposed to be done within five years from the time the FDI proposal was cleared by the government. Under the new rule, the five-year timeframe will begin from the time a foreign company opens its first store in India.
This was a change pushed for by Ikea, which plans to invest $1.59 billion to open stores in India in coming years.
“The relaxing of norms could enthuse many multinationals to enter India,” observed Arvind Singhal, chairman and managing director, Technopak, a retail consultancy firm. “They can now open a few physical stores with minimum investment and build a strong online presence to do business here.”
It has been a slow process for global companies getting permission under the ruling. Swarovski was given permission in October, two years after its application. Swedish retailer H&M opened its first store in India in October, and added a bigger, second store in New Delhi on Nov. 7.
Global retailers can now have their own Web sites to compete with e-tailers such as Flipkart, Amazon India and Jabong, which have been growing fast, particularly in the fashion and electronics segment, but mainly via discounts. Analysts believe that if H&M, Swarovski, Ikea and others launch their own e-commerce sites, they will have far more control over the products, the counterfeit markets, as well as over discounting.
Over the last 18 months, the online space has been changing fast — Flipkart, the leading e-tailer in India, acquired fashion site Myntra in May 2014, while Amazon stepped into the fray, extensively stepping up its fashion category and coming in as sponsor of the India Fashion Week and couture week in New Delhi.
Jabong, another big player in the fashion space, has been undergoing several changes of its own. This week, the company revealed the appointment of a new chief executive officer, Sanjeev Mohanty, who oversaw Benetton’s rapid expansion in India. He will join Jabong in December.